French luxury goods are among the most counterfeited products in the world and LVMH (Louis Vuitton Moet Hennessy) the most pirated brand. Why aren't IP protections making a dent?

It is now increasingly acceptable to own fake luxury goods – even among those who can afford to buy the original. Among the fakers' favorite brands: Louis Vuitton, Chanel, Hermes, YSL, Gucci. And France, home of the most legendary luxury goods, is losing about US$7.8 billion and 38,000 jobs a year.*

It's easy to see why. In the UK, two-thirds of consumers (up from 20 percent last year) happily admit to owning counterfeit clothing, footwear, watches and other luxury products – and nearly one-third of overseas shoppers bought a fakes thinking it was genuine.

In China, the counterfeiting of high-end cosmetics and fragrances is big business. And although luxury retailers are fighting back (with Chanel, LVMH, Prada, Burberry and Pinault-Printemps-Redoute Gucci successfully suing a Beijing seller for copyright infringement on counterfeit goods), it seems that such lawsuits are only scratching the tip of a giant iceberg.

In South Korea, lawyers estimate that counterfeiters produce one million fake European handbags and wallets a year. Even more bad news for Europe's luxury goods makers, "super copies" (i.e., high-quality fakes so superior that even employees of Hermes, Chanel, Gucci and other brands find it difficult to spot them) have been surfacing around the world. Fact: China may be the biggest producer of fake bags and wallets but South Korea is the biggest maker of super copies.

Why the lust for luxury brands?

Here is what experts say: In good times and bad, in war and peace the pursuit of pleasure remains. Luxury goods provide comfort, reward, validation whatever one's financial situation. Also, purchasers of such products buy them not for their functional aspects but for the perceived social status ownership of these high-end brands confer upon them. There are also "aspirational" consumers who purchase name brands (albeit fake ones) because they aspire to live the lifestyle of the "jet set," the glitterati, the "old money," rather than that of their peers. Fastidious about quality? When you can't tell counterfeits from the original, people will more readily buy fakes and save a few hundred dollars.

How France is fighting the fakers

Early this year, the Comite Colbert – France's 68-member elite club of luxury goods makers, including legendary brands such as Coco Chanel and Louis Vuitton – launched a new anti-counterfeiting campaign in cooperation with French Customs and France's anti-counterfeiting committee. The campaign has two goals: one, to put IP issues into perspective by reminding everyone of France's rich industrial heritage and how every individual has to protect it by refusing to purchase irresponsibly; and two, to warn potential counterfeit buyers that they risk affecting their health, committing a criminal offense, financing criminal organizations and acting against France's industrial heritage and national interests.

The French government also held a series of meetings – inviting top intellectual property figures from around the world together with representatives of French luxury brands – with the purpose of building a coalition of government, non-governmental, industry and technological resources to help fight counterfeiting in France. However, the proposed initiatives, while focusing more on stopping the supply side rather than engaging the demand side of the equation, don't seem nearly enough.

The luxury brands themselves continue to fight back ferociously. Louis Vuitton has takes Brittany Spears, Google and other alleged IPR violators to court – and won. The cosmetics giant, L"Oreal, is also taking action against eBay for not doing enough to combat counterfeit goods on its auction website.  Fashion brands Hermes and Christian Dior are following suit.

Do IP protections really work in the world of luxury goods?

Some experts believe that because of the unique nature of luxury goods counterfeiting, intellectual property protections may have limited applicability. In his report, "Shopping for Gucci on Canal Street," Jonathan Barnett contests the assumption that counterfeiting harms innovation incentives. Building on his thesis that counterfeit consumers like the increased social status conferred by name brand ownership, he claims that one, the existence of luxury goods copies may actually increase the "snob effect" of the genuine article and the price more "elite" consumers are willing to pay for it; and two, it may lead "non-elite" consumers to perceive a greater status benefit to be gained by acquiring the real thing, which could then lead them to purchasing it.

Meanwhile, in their report, "The Piracy Paradox," legal scholars Kal Raustiala and Christopher Sprigman, say that:

"Why, when other major content industries have obtained increasingly powerful IP protections for their products, does fashion design remain mostly unprotected--and economically successful? … We argue that the fashion industry counter-intuitively operates within a low-IP equilibrium in which copying does not deter innovation and may actually promote it. We call this the 'piracy paradox.' This paper offers a model explaining how … how copying functions as an important element of and perhaps even a necessary predicate to the industry’s swift cycle of innovation. In so doing…we also hope to spark further exploration of a fundamental question of IP policy: to what degree are IP rights necessary to induce innovation?" Click here for more.

The fact remains clear, though, that luxury goods powerhouse France has lost revenues, has lost jobs, due to counterfeiting and piracy. Perhaps taking these contrary assertions into consideration would result in a more effective and easy-to-implement anti-counterfeiting policy.

* From a Business Wire article